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EMC profit climbs 35%, but stock sinks on VMware results

Jan 29, 2008 Market Outlook

EMC’s quarterly profit climbs 35%

By MarketWatch

Last Update: 8:33 AM ET Jan 29, 2008

WASHINGTON (MarketWatch) — EMC Corp. on Tuesday posted a 35% gain in
fourth-quarter net income, driven by growth in all key segments of its
data-storage business.

Yet the company’s stock fell sharply in premarket action after its VMware Inc.
subsidiary fell short of Wall Street’s forecast for revenue.

Shares of EMC (EMC) which rose 1.4% Monday to close at $16.91, were down 8% in
premarket trades.

In the final three months of 2007, meanwhile, EMC reported a profit of $525.7
million, or 24 cents a share, compared with net income of $388.8 million, or 18
cents a share, in the year-ago quarter.

Revenue rose 19% to $3.83 billion from $3.21 billion a year ago. Hopkinton,
Ma.-based EMC makes hardware and software that allow companies to store vast
amounts of computerized data.

By that measure, EMC exceeded Wall Street estimates. The company was expected to
earn 22 cents a share on revenue of $3.66 billion, according to a survey of
analysts compiled by financial-data provider FactSet.

In 2008, meanwhile, EMC forecast that revenue would grow 13% to $15 billion from
$13.23 billion in 2007. The company also expects to generate income of $1.04 a
share, excluding onetime items.

“Looking forward, EMC has never been better positioned to continue to grow and
gain market share,” Chief Executive Joe Tucci said in a statement. “We have the
best product line-up in our history with a very favorable product cycle, and our
proven go-to-market model is firmly in place.”

In preopen trading, however, investors focused on results at EMC’s VMware (VMW)
business.

After U.S. markets closed Monday, Palo Alto, Calif.-based VMware reported a 150%
increase in fourth-quarter profit and an 80% jump in sales to $412 million, but
analysts were expecting revenue of $417 million.

VMare’s revenue forecast for 2008 also appeared a touch light compared to Wall
Street’s forecast.

In early-morning action, VMware shares plunged as much as 26% to $61 - a level
the stock has not seen since its record-setting IPO in August of last year. The
stock is down sharply from its peak above $125 in late October.

During the quarter, EMC said Systems revenue rose 15% and totaled 44% of the
quarter’s revenue.

Sales from software licenses and maintenance rose 20% from a year ago to account
for 40% of the fourth-quarter’s sales.

Professional services, systems maintenance and other services accounted for the
remaining 16% of quarterly sales.

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